KYC: Know Your Company (Life Insurance Company)

Posted by sammi maheshwari on July 26th, 2017

Life insurance is one of the best things you can buy for your loved ones. It is your way of letting them know that they will be taken care of even if you are not around. Edelweiss Tokio is also an life insurance company which started its operations in 2011 and has already issued 92,000 policies till FY15 with 62 branches in 50 cities all over India and 1,650 employees. 

Edelweiss’ greatest priority has always been to provide you with better products as we understand what your family means to you and what our products will mean to them in the future. We view the world from our customer’s perspective to understand their dreams and aspirations and this reflects in our advisory process and our products. To better understand the mechanism of an insurance company and how they operate you have to look at certain points; 

How does an Insurance company work? 

Insurance is covering you or a valuable against any contingency or an unforeseen event resulting in a partial or full damage (disability, medical emergency or death in the case of an individual).

You pay a specific amount to the company known as premium, which can be paid as a single payment or in installments, against which the company provides you a life cover called the sum assured. If there isany accident or loss of life of the policyholder, the insurance company provides you with a lump sum amount to cover your losses. 

There are various other factors involved like the tenure of the policy, the amount of the premium and the sum assured, which are decided between the insurer (the insurance company) and the insured (the policyholder). 

How do insurance companies make money? 

To answer your question, here is a simple formula:

Insurance Company's Profit = Premium Collected + Income from Investments - Underwriting

Expenses (Reinsurance Cost, Operations Cost, Overhead Costs, Agent Commissions, Marketing Expense etc.) - Claims Settled 

• Premium Collected: It is the amount paid by the insured to the insurer. 

• Income from Investments: The premium collected by the insurance company is invested in various financial instruments and the insurance company earns interest on these investments. 

• Underwriting Expenses: This includes administrative costs like sales, marketing, agent commissions etc. 

In addition to this, insurance companies sometimes sell their risks to reinsurers and protect themselves from running into losses in case of an eventuality. Like an individual pays the insurer a premium, insurance companies pay reinsurers a premium of sorts to cover their risks. This expenditure also gets added to the underwriting expenses 

• Claims Settled: Every insurance company needs to settle claims like: 

-       Health Insurance: paying hospital bills of the policyholder

-       Motor Insurance: paying garage bills of the policyholder’s vehicles

-       Life Insurance: upon the death of the policyholder or maturity of the policy term

 The remaining amount is the profit of the insurance company.

 This is how the insurance companies operate and make a profit. As this can be a bit complicated at times, we are always working towards making its products and policies user friendly so that you can better understand what our products stand to offer and choose the best according to your needs.